People typically invest in the stock market for growth, income or both. However, it may surprise you to learn that the primary goal of 48% of current investors and 48% of those looking to invest is, to go on a holiday, according to the 2023 ASX investor survey.
It certainly surprised me given that I believe investing is about building wealth and planning for your future, whilst going on a holiday is about saving money separate from your investments. While I am all for going on a dream holiday, there is a way you can achieve this while still building wealth.
To begin with, you need to have a clear vision of the holiday you want to experience and your goals for building wealth. This provides you with the targets you need to achieve as you work towards saving money and investing for the future. For example, if you want to spend $10,000 on a holiday in two years' time, you need to save $417 a month. If your goal is to also have $10,000 invested in two years, you would have the same amount going towards your investments.
Knowing this information also helps you to develop a realistic budget, as you need to review your income and expenses to determine if you can achieve your goals in the required timeframe. Once you create a budget, you’ll be able to identify if you need to adjust your goals or your current spending habits.
One of the best ways that allows you to achieve your financial goals, and potentially go on a holiday much sooner, is to invest in the stock market, as it is very liquid, has good capital growth, and you can receive income from dividends. The trick is not to invest in the short term, hoping you’ll earn enough to go on a holiday only to find your stocks are worth less than you paid for them. It is important that your investment strategy aligns with your risk tolerance and time horizon because while there is the potential for higher returns in the stock market, it also comes with higher risks.
To manage the risk, it’s important to diversify into a concentrated portfolio of 8 to 12 high-quality stocks in the top 100 on the ASX. As your portfolio grows and you lock in profits, you can decide if you want to reinvest the money into other stocks or take a portion of the profits to contribute to saving for a holiday. Remember, you should invest over the long term because if it is done well, you can achieve wealth and still be sipping cocktails on the beach.
Dale Gillham is Chief Analyst at Wealth Within and international bestselling author of How to Beat the Managed Funds by 20%. He is also author of the bestselling and award-winning book Accelerate Your Wealth—It’s Your Money, Your Choice, which is available in all good book stores and online at www.wealthwithin.com.au